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Varying weights of marginal contributions: One approach to solving the low-risk puzzle?

Author

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  • Tobias Hiller

    (University Leipzig, Department of Microeconomics, Germany)

Abstract

This paper enhances previous studies of the so-called low-risk puzzle with concepts from cooperative game theory. To allocate portfolio risk to single assets, previous studies used concepts such as the Shapley value. In these concepts, the marginal contributions of assets to risks of subsets of the portfolio are evaluated with fixed pre-specified weights. In this paper, we vary these weights. We show the application by means of a simulation study. In this context, varying the weights of the marginal contributions generates added value to the solution of the so-called low-risk puzzle.

Suggested Citation

  • Tobias Hiller, 2024. "Varying weights of marginal contributions: One approach to solving the low-risk puzzle?," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 26(01), pages 1-9, March.
    • Handle: RePEc:wsi:igtrxx:v:26:y:2024:i:01:n:s0219198923500147
    DOI: 10.1142/S0219198923500147
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    Keywords

    Low-risk puzzle; portfolio risk; cooperative game theory; semi value;
    All these keywords.

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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